Oil Price Shocks and Economic Growth in Oil-Exporting Countries: Does the Size of Government Matter?

December 22, 2017

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Amir Sadeghi. Oil Price Shocks and Economic Growth in Oil-Exporting Countries: Does the Size of Government Matter?, (USA: International Monetary Fund, 2017) accessed December 24, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper examines the impact of government size on how output and government expenditure respond to oil price shocks in 28 oil-exporting countries between 1990 and 2016. Results suggest that if the size of government (measured by government expenditure-to-(non-oil) GDP ratio) is larger, non-oil output growth, in response to a positive oil price shock, tends to be greater and output volatility higher. Furthermore, I find that an unexpected increase in oil price leads to expansion in government expenditure and the expansion is larger, the larger is the government. This paper provides empirical evidence for direct correlation between government size and macroecnomic stability in oil-exporting countries. The findings imply that fiscal consolidation and economic diversification help to narrow down economic exposure to exogenous oil price shocks and reduce volatility in non-oil output.

Subject: Capital spending, Current spending, Expenditure, Oil prices, Prices, Total expenditures

Keywords: Capital spending, Current spending, Global, Government expenditure, Growth, Oil exporter, Oil growth, Oil output, Oil price disturbance, Oil price shock, Oil price volatility, Oil prices, Oil-Exporting Countries, Oil-exporting country, Total expenditures, WP

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/287
Stock No:

WPIEA2017287
ISBN:

9781484335390
ISSN:

1018-5941

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